The Environmental Costs of Free Trade

Behind closed doors, negotiators hammerout complex trade agreements that will determine the flow of trillions of dollars of resources, goods and other commodities each year. Yet little public attention is paid to trade negotiations, and the mystique and complexity of trade agreements obscures the enormous environmental consequences that will flow from them.

For much of the world, trade practices determine the scale and character of resource exploitation and use. The ways in which we use, or misuse, resources has a great deal to do with the environmental crises that confront us, including global warming, deforestation and desertification. Unfortunately, trade- environment linkages are rarely recognized and poorly understood.

GATT and the Environment

Rules of trade are embodied in several bilateral and multilateral agreements. By far the most important is the General Agreement on Tariffs and Trade (GATT), which governs approximately 90 percent of world trade among nearly 100 countries. GATT is currently being amended by negotiations, known as the Uruguay Round, which will conclude in December 1990.

GATT is being re-negotiated with virtually no consideration of its environmental implications. Governmental negotiators have solicited and received input only from large corporations and trade associations. They have not consulted with environmental organizations. The shroud of secrecy which surrounds trade negotiations allows the corporate objectives of profit maximization and deregulation to be advanced without regard for their effect on the environment. About the only way that environmental programs or regulations find their way onto the agenda of trade institutions is when they are assailed as non-tariff trade barriers.

The environment and export controls

One of the stated objectives of the current GATT negotiations is "the fullest liberalization of trade in natural resource-based products," including the reduction and ultimate elimination of export controls.

The consequences of eliminating export restrictions are well illustrated by the Canada-U.S. Free Trade Agreement (FTA) experience. Major provisions of the FTA address export controls, fundamentally diminishing the sovereign right of both countries to restrict the export flow of their resources. In 1988, the United States Trade Representative asserted that, by proscribing future government "interference" in the energy trade, the FTA assures an essential priority of U.S. trade policy.

One of the first observable effects of the FTA is the development of a new round of energy mega-projects in Canada intended to serve U.S. markets. One example of such a project is Esso, Shell and Gulf's proposed exploration of the Mackenzie Delta natural gas reserves. Canada's National Energy Board has agreed to allow the corporations to export 85 to 90 percent of the natural gas found in the Mackenzie Delta area of the Canadian Arctic. Guaranteed access to Canada's energy resources will likely prolong the United States' inefficient use of non- renewable resources, undermine energy conservation and efficiency initiatives and significantly increase carbon emissions to the atmosphere.

Limiting the right of nation states to restrict the export of resources is, not surprisingly, of considerable interest to developed countries that have gained control over the largest share of those resources, and that would like to ensure that they remain cheap and easily available. Developed nations represent approximately 20 percent of the world's population, yet they consume 80 percent of its natural resources.

The U.S. demand for an end to export restrictions on agricultural commodities is particularly disturbing. To appreciate the significance of such a demand, it is important to note that, according to the United Nations Center on Transnational Corporations, transnational corporations control "80 percent of the world's land, cultivated for export oriented crops," and it is apparent that the priorities of corporations have a great deal to do with the expansion of agricultural production in the developing world to serve export markets rather than the needs of local people.

The impact of the abolition of export controls on the people of the developing world is evident and appalling. Less apparent, but perhaps even more destructive over the long term, are the ecological consequences of such policies. By putting valuable agricultural resources at the service of export markets in countries that are not self-sufficient in food, enormous pressures are created for local people to over-exploit remaining and other resources simply to eke out the barest existence.

The environment and import controls

A similar agenda of "liberalization" is being pursued to reduce import controls. The stated objective of the industrial nations is to create a "level playing field," in which no special penalties affect foreign producers and all players compete without handicaps.

Such a trade policy will make it more difficult for countries to maintain or implement tough environmental standards without undermining the competitiveness of their domestic industry. There are two ways for a government to impose environmental standards while at the same time protecting the competitive position of local industry and business. First, a country can establish import tariffs to offset pollution control costs so that domestic producers will not be at a disadvantage when competing with imports from countries without similar environmental regulations. Second, the country can subsidize the cost of environmental protection with general revenues by underwriting pollution control costs. Both options, however, are at odds with GATT principles, which explicitly limit the right of governments to implement tariffs or use subsidies.

With import controls prohibited, exporting manufacturers in countries with less strict environmental standards can produce pollution-intensive goods more cheaply than producers in other countries; and they will then be able to sell the goods at a better price in the markets where environmental regulation imposes higher production costs. Polluting manufacturers in these countries thus gain a comparative advantage over their competitors in countries with stricter environmental regulation. In this context, the willingness to endure environmental and resource damage may often be the quid pro quo for attracting investment and earning export currency.

Both developed and developing countries regularly allow industries to externalize the environmental costs of their activities. Developing countries, however, desperate for economic growth, are more likely to endure the environmental and public and occupational health costs associated with hazardous enterprises in order to draw and hold foreign capital.

This same dynamic has also encouraged the development of a flourishing trade in hazardous waste. Disposal costs in some developing countries are as low as $40 per ton for wastes that would cost as much as $250 to $300 per ton to dispose of in the United States. Although efforts are underway to negotiate treaties curtailing the export of hazardous waste, the movement within GATT to weaken the regulatory authority of countries to control exports runs counter to these efforts and may ultimately undermine them.

Not only will reducing import controls discourage incipient efforts at environmental regulation in poorer nations determined to attract investment, it will also create pressure for developed countries to reduce environmental standards to a lower, and more common, denominator. Polluters in industrialized countries often threaten to close plants or move production abroad if environmental and occupational health safeguards are not eased. For example, when worker and community right-to-know legislation was proposed in Canada, the Canadian Chemical Producer's Association responded by stating that: "If unnecessary or excessive costs are introduced unilaterally by any country, (or province), innovation and development will simply cease or be transferred to jurisdictions with a more favourable business climate. Should this happen in Canada, it would quickly be reduced to a warehouse for chemicals."

Overt threats, however, are often not necessary. Corporate polluters have often relied on the implied threat of disinvestment or plant closures, for example, to mobilize labor in opposition to environmental protection regulations.

The environmental future

A recent decision of the Court of Justice of the European Community illustrates the type of conflict that can exist between liberalized trade and environmental protection. The case is one of the first to consider a complaint that national environmental legislation of general application is a non-tariff barrier to trade. If the decision is followed in future cases, national environmental objectives will often take a back seat to the country's trade obligations.

At issue in this case was a Danish waste reduction regulation, in place since 1981, that required all beer and soft drinks to be sold in returnable containers. To ensure that adequate systems were in place to recover used containers, beverage marketers were permitted to use only those containers which had been approved by Denmark's Environmental Protection Agency. This requirement was less stringent than it may sound since no request for approval had been turned down.

The European Court acknowledged that the Danish regulations were "highly effective" and made no distinction between domestic and imported beverages. The law allowed exemptions for small distributors and for importers who wanted to test market their products. Despite the fact that 99 percent of the beer market was dominated by Danish products, other member states of the European Economic Community (EEC) objected to the Danish regulations. They were joined by retail trade associations which complained about the cost of establishing collection systems and argued for the right to market non-refillable containers, including disposable beer cans.

In considering the complaint, the European Court noted the mandatory obligation established by the EEC treaty to preserve, protect and improve the quality of the environment. It found the Danish regulations to be just such a measure and accepted the recommendations as a bona fide and successful effort to accomplish environmental objectives. It also conceded that a recycling program would not be able to achieve the same high standard of resource conservation that Denmark's re-utilization laws have.

These findings notwithstanding, the Court determined that reuse regulations, which required that all marketers of containers establish return systems, could be more expensive for importers than domestic producers. Acknowledging that no actual restraint of trade had arisen, the Court nevertheless held that Denmark had failed to satisfy the onus of proving that its measures were "not disproportionate to achieve a legitimate aim." The Court thus found Denmark in breach of its EEC obligations.

It is difficult to imagine an environmental regulation with a more secure legal basis. Yet, despite the absence of any demonstrable impediment to trade, the European Court of Justice found Denmark's container legislation inconsistent with the principle of free trade.

Controlling the agenda

While the development of international consensus around environmental standards may be a desirable objective, there are several reasons to suspect that the "free trade" agenda is to lower environmental standards while transferring standard- setting processes to institutions that are less accountable to the community and more amenable to corporate influence and control.

Trade negotiation and dispute resolution processes are far less public and democratic than are the procedures of the elected bodies and administrative agencies that would otherwise deal with important environmental matters. Moreover, the advisory committees which have been established to advise governments' on the present GATT negotiations include many representatives from the business community but none from environmental groups.

The implications of trade agreements are also obscured from public scrutiny by special rules that apply to their implementation. In the United States, for example, the Canada-U.S. Free Trade Agreement was presented to the U.S. Congress as a fait accompli; no amendments were possible, and Congress could only vote for or against the entire agreement.

When a country pursues an agenda of liberalized or free trade, without consideration of the environmental consequences, the results often undermine important environmental objectives. GATT and other trade agreements enshrine principles of deregulation and create significant obstacles to environmental and resource management initiatives. For environmentalists, the task is to generate alternative trade proposals to amend the GATT so that trade can help sustain our ecosystem, rather than destroying it.

Steven Shrybman is an attorney with the Canadian Environmental Law Association in Toronto.